Assessing a Station's Value

[WayMikeC]

If you would like to make a credible offer on a station, what factors do you need to consider when determining what a fair price for the station should be?

 

[Andy_Brown]

> If you would like to make a credible offer on a station,
> what factors do you need to consider when determining what a
> fair price for the station should be?
>

Cash flow times the going multiplier.

Going multiplier is (like in real estate) based on the sale of like properties in that market over recent time (more than just the last station to sell), but not going back too far.

Ratings are not necessarily reflected in a station's cash flow if it has bought those ratings through overpromotion.

Debt assumption, lease assumption, contract assumption are all variables that can be a factor. Age of major equipment and condition of tower/antenna are also a factor, but can be often dwarfed by the actual number (what's a 100k when you are talking multi millions).

It is not unusual for stations to sell at 12x to 20x cash flow. There was a time when it was 4x to 8x. My information stems from the late 90's, so for a real up to date snapshot, call a radio station broker.

Good luck.<P ID="signature">______________
Electricity is really just organized lightning.
~George Carlin</P>

 

[Goat Rodeo Cowboy]

> It is not unusual for stations to sell at 12x to 20x cash
> flow. There was a time when it was 4x to 8x. My
> information stems from the late 90's, so for a real up to
> date snapshot, call a radio station broker.
>
I am going to make some assumptions about the potential buyer who asked the question. You are probably looking for a station under $500,000 purchase price. You are not looking at a station in a major market that has the ability to be a major market serious player.

The Cash-Flow Multiplier concept has some traction in larger stations where the books are kept by a publicly traded company that keeps books per "Generally Accepted Accounting Practices". When you get into a Mom and Pop station where finances are run out of someone's shirt pocket and they go to a tax man once a year with a shoebox full of records, I would contend the Cash Flow is a totally bogus number.

(That having been said, the cash flow multipliers used in the era of 1995 to 2001 during the dot-com era when everyone assumed only good things could happen with your investment were outrageously used. For a small market station using 6 or 8 times cash flow can get you into an impossible business model very quickly.)

Build yourself what the accountants call a "Pro Forma" budget and financial statement. If you can get the current finance statement of the target station, that is a great starting place. How much business can you hope to do with your best efforts. What is it going to cost to operate. Light bill. Salaries. Rent. Music License. Water bill. What kind of cash flow will YOU generate? What kind of profit can YOU generate?

Do you have the money to buy it? If you put that money in CDs at the bank what would it bring you? Will the station earn you more than the bank will pay you? Are you going to borrow money to make the purchase? What will the interest on the borrowed money cost you? Will your proposed cash flow allow you to make the payments?

I guess that's why I'm sitting here still searching for that station. I'm so dumb I expect to be able to make the payments on the purchase price and still have some money left to buy groceries.

You can't pay 20 times cashflow and do that.

Look in my profile for my e-mail address if you would like a copy of an Excel spreadsheet I put together to analyze what I thought one station could do. Plug YOUR numbers in and run with it.

The Goat Rodeo Cowboy

 

[Les]

Suggestion

Most regulars on this board are technically oriented. This does not
suggest ideas expressed here are in any way flawed. But, I think
you might get more response...and more diverse response...if you
posted something similar (though please, not identical to avoid an
R-I rules violation) on The Coast to Coast board. If you do, I'll
follow it up with a note indicating it was done at a moderator's
suggestion and is not intended as duplication.

Good Luck!
<P ID="signature">______________
Misanthropy:

The only religion that truly comes from within!</P>

 

[Andy_Brown]

> I am going to make some assumptions about the potential
> buyer who asked the question. You are probably looking for
> a station under $500,000 purchase price. You are not
> looking at a station in a major market that has the ability
> to be a major market serious player.

> ... I guess that's why I'm sitting here still searching for that
> station. I'm so dumb I expect to be able to make the
> payments on the purchase price and still have some money
> left to buy groceries.
>
> You can't pay 20 times cashflow and do that.


Good points. I keep thinking that there are no small stations that haven't
been assimilated. It is a shrinking number. But any buyer should still require
making the seller open the books. Even just some basic income and expense numbers can be helpful, and the most valuable asset is the client list and history. In a small community, there are a finite number of potential sponsors, and if the community is not growing very quickly, it is quite an assumption that no matter how much better brand of radio you can create, there may not be any more sponsors than have already been clients of the seller. It is also safe to assume that if you change the format of the station, that some of the existing clients will no longer wish to advertise (think: previously canned MOR, new owner wants to do hip hop). Sure, there may be some new ones attracted to the change, but be informed of what businesses in the community have that potential.

Consolidation of owners on the dial has really put even the smallest stations WORTH OWNING out of reach.

Clear Channel Communications, Cumulus Media Inc., Disney, Emmis, Entercom Communications, and Viacom combined own 18 percent of all radio stations in the United States. However, measuring by the number of stations (1,982) alone misleads. Audience share for the these stations now covers the possible market share. Radio audience percentages have fallen off slightly in the past decade, however 93 percent of citizens in the U.S. claim to listen to radio at least once per day. Arbitron shows that of 287 (possible) radio markets, the top six media companies together account for reaching 100 percent of the listening audience in 2004.

http://www.thinkandask.com/news/mediagiants.html

This is really all off topic for this forum, but consolidation of ownership does effect the entire industry, not just owners and not just the media giants. <P ID="signature">______________
Electricity is really just organized lightning.
~George Carlin</P>

 

[thebroker]

The guys here have given you some GREAT pointers. I do close to 50 appraisals a year, and if you need some advice, I'm happy to help. Email me ([email protected]) and I'll show you how to figure out what multiple should apply, and how to actually get the cash-flow number to multiply. It's a really complex formula, and it took me a whole lot of years to perfect, but when you go through it, you'll see how much it just makes sense.

Another good pointer that some folks have alluded to but nobody mentioned outright is common sense. Unfortunately, far too many owners who are not represented by brokers, and many of those who are, have unrealistic expectations of what their stations are worth. You have to watch out for that lest you overpay. And trust me when I say overpaying can be a fatal mistake.

Just drop me a note and we'll chat. Good luck!

 

[radiomaps]

> If you would like to make a credible offer on a station,
> what factors do you need to consider when determining what a
> fair price for the station should be?
>

Map the station's signal coverage and determine the potential audience/population served. Obviously this would be critical in the case of a non-commercial station. Does it cover the entire market? Is the signal coverage upgradeable? Could it be operated more efficiently (less tower rent, less TPO) from another site? Probably information to go into a business plan for review by the bank or investors.
<P ID="signature">______________
Radio Data Services
www.radiodataservices.com
[email protected]
FM radio maps, FCC upgrade studies, demographics</P>

 

[Transmitter-Man]

Broker,

Have you noticed AM station sale prices change in areas where IBOC is causing adjacent channel problems to lower powered stations?

Transmitter-Man
Transmitters 'R' Us
http://www.transmittersrus.com